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#11
06-11-2007, 01:08 AM
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Re: an argument against the gold standard
[ QUOTE ]
[ QUOTE ] [ QUOTE ] Gold being used as money (or a store of value in a reserve scenario) artificially inflates the price of gold. This is a bad thing cause gold has useful properties for the construction of high tech goods. Fiat currencies are nice because they dont directly inflate the price of any basic material directly. Unfortunately both people and countries still hold gold as a hedge against hyper inflation which kinda defeats the purpose. If everyone would just agree to do away altogether with the idea of gold being used as currency (or a backing for currency) the price should drop substantively and we would get better and cheaper electronic goods. Just a thought. [/ QUOTE ] Or, we could have a currency backed by a diverse basket of commodities. [/ QUOTE ] and exarcebate the problem by having many different commodities that can fluctuate in supply. [/ QUOTE ] Huh? Does diversifying your stock portfolio exacerbate the problem that any single stock can fluctuate in value? The whole point of diversifying is that while any one element of the basket/portfolio is subject to random noisy fluctuation, it's much less likely that all of them fluctuate together. So the basket is a lot more stable. 
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#12
06-11-2007, 01:18 AM
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Re: an argument against the gold standard
[ QUOTE ]
and exarcebate the problem by having many different commodities that can fluctuate in supply. I think you are missing one of the main problems with any specie currency...changes in supply wreak havoc on the monetary system. Gold at least is scarce enough that supply doesnt often change rapidly. The California gold rush was substantial enough to disrupt prices, and if the world were still on a gold standard (if that were even feasible) would be highly susceptible to a large find, which is highly likely to come at some point....most likely under water somewhere. [/ QUOTE ] How would a diverse basket of commodities be more susceptible to price fluctuations than a single commodity? That doesn't make any sense.
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#13
06-11-2007, 01:24 AM
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Re: an argument against the gold standard
[ QUOTE ]
Gold being used as money (or a store of value in a reserve scenario) artificially inflates the price of gold. This is a bad thing cause gold has useful properties for the construction of high tech goods. Fiat currencies are nice because they dont directly inflate the price of any basic material directly. Unfortunately both people and countries still hold gold as a hedge against hyper inflation which kinda defeats the purpose. If everyone would just agree to do away altogether with the idea of gold being used as currency (or a backing for currency) the price should drop substantively and we would get better and cheaper electronic goods. Just a thought. [/ QUOTE ] Yeah, Silver Standard FTW.
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#14
06-11-2007, 01:31 AM
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Re: an argument against the gold standard
[ QUOTE ]
[ QUOTE ] [ QUOTE ] [ QUOTE ] Gold being used as money (or a store of value in a reserve scenario) artificially inflates the price of gold. This is a bad thing cause gold has useful properties for the construction of high tech goods. Fiat currencies are nice because they dont directly inflate the price of any basic material directly. Unfortunately both people and countries still hold gold as a hedge against hyper inflation which kinda defeats the purpose. If everyone would just agree to do away altogether with the idea of gold being used as currency (or a backing for currency) the price should drop substantively and we would get better and cheaper electronic goods. Just a thought. [/ QUOTE ] Or, we could have a currency backed by a diverse basket of commodities. [/ QUOTE ] and exarcebate the problem by having many different commodities that can fluctuate in supply. [/ QUOTE ] Huh? Does diversifying your stock portfolio exacerbate the problem that any single stock can fluctuate in value? The whole point of diversifying is that while any one element of the basket/portfolio is subject to random noisy fluctuation, it's much less likely that all of them fluctuate together. So the basket is a lot more stable. [/ QUOTE ] Diversification of a stock portfolio reduces fluctuation because the components are chosen to react differently to different economic environments (eg rising/falling interest rates,increasing/decreasing inflation etc.). It is their negative correlation that balances the portfolio. A market basket of commodities is non-correlated, not negatively correlated, so unless the basket was composed of so many commodities that no one commodity could ever dominate, and there was fractional convertabiity only (ie redemption of the currency is mandated to be on the entire basket), the diversification would be risky at best. The US dollar backed by (but not convertible to) a diverse basket of securities and commodities, though dominated by Treasuries of course.
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#15
06-11-2007, 01:32 AM
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Re: an argument against the gold standard
[ QUOTE ]
[ QUOTE ] Gold being used as money (or a store of value in a reserve scenario) artificially inflates the price of gold. This is a bad thing cause gold has useful properties for the construction of high tech goods. Fiat currencies are nice because they dont directly inflate the price of any basic material directly. Unfortunately both people and countries still hold gold as a hedge against hyper inflation which kinda defeats the purpose. If everyone would just agree to do away altogether with the idea of gold being used as currency (or a backing for currency) the price should drop substantively and we would get better and cheaper electronic goods. Just a thought. [/ QUOTE ] Yeah, Silver Standard FTW. [/ QUOTE ] Yeah, the Hunt brothers would have loved that!
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#16
06-11-2007, 01:38 AM
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Re: an argument against the gold standard
[ QUOTE ]
A market basket of commodities is non-correlated, not negatively correlated, so unless the basket was composed of so many commodities that no one commodity could ever dominate, and there was fractional convertabiity only (ie redemption of the currency is mandated to be on the entire basket), the diversification would be risky at best. [/ QUOTE ] Of course the basket would be composed of so many commodities that no single commodity would be able to dominate. Why would you assume otherwise?
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#17
06-11-2007, 01:56 AM
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Re: an argument against the gold standard
[ QUOTE ]
Gold being used as money (or a store of value in a reserve scenario) artificially inflates the price of gold. [/ QUOTE ] That wouldn't be an artificial inflation, it would be a *natural* return to a *market* price. Forcibly distorting the market for gold by restricting one of the prime uses it would fill in a free market is the artificial price changing event. Further, this is standard "that which is seen and that which is unseen" falacy, since the upside in every other aspect of the economy is ignored. This is like that arguement someone showed the other day that eliminating the capital gains tax would be bad because it would lead to people investing in things they wouldn't otherwise.
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#18
06-11-2007, 03:10 AM
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Re: an argument against the gold standard
[ QUOTE ]
[ QUOTE ] A market basket of commodities is non-correlated, not negatively correlated, so unless the basket was composed of so many commodities that no one commodity could ever dominate, and there was fractional convertabiity only (ie redemption of the currency is mandated to be on the entire basket), the diversification would be risky at best. [/ QUOTE ] Of course the basket would be composed of so many commodities that no single commodity would be able to dominate. Why would you assume otherwise? [/ QUOTE ] Because there arent enough non-consumed commodities of sufficient scarcity and that can be distributed amongst the world currencies* at the outset to prevent a major discovery or depletion of any one of them from becoming dominant. * I assume you understand that all major currencies would have to be backed by the same basket of commodities and own them in the same proportion. And that the commodity is one that has to be primarily hoarded and not consumed.
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#19
06-11-2007, 08:39 AM
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Re: an argument against the gold standard
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* I assume you understand that all major currencies would have to be backed by the same basket of commodities and own them in the same proportion. And that the commodity is one that has to be primarily hoarded and not consumed. [/ QUOTE ] I don't understand either assumption. Why can't the market set an exchange rate between two currencies with different backings? Why isn't this a problem today when one currency is backed (you claim) by T-notes, metals and foreign currencies, and another is backed by state-owned oil reserves etc? I also don't understand why coffee futures or pork bellies or whatever can't be part of the backing of a private currency.
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#20
06-11-2007, 12:27 PM
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Re: an argument against the gold standard
[ QUOTE ]
[ QUOTE ] * I assume you understand that all major currencies would have to be backed by the same basket of commodities and own them in the same proportion. And that the commodity is one that has to be primarily hoarded and not consumed. [/ QUOTE ] I don't understand either assumption. Why can't the market set an exchange rate between two currencies with different backings? Why isn't this a problem today when one currency is backed (you claim) by T-notes, metals and foreign currencies, and another is backed by state-owned oil reserves etc? I also don't understand why coffee futures or pork bellies or whatever can't be part of the backing of a private currency. [/ QUOTE ]
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